App Store subscription model 'economically unviable'

Music-streaming services are up in arms over Apple's new subscription model for the App Store.

By
Ben Camm-Jones
| 18 Feb 11

Subscription-based music services such as We7, Last.fm and Rhapsody are livid about Apple's new subscription service for the App Store.

PaidContent reports that music-streaming services are unhappy with Apple's insistence on a 30 percent cut of subscriptions created within iOS apps, saying that their margins are already too thin to make such a system profitable.

We7's Steve Purdham said that Apple's subscription model was "economically unviable" whereas Last.fm co-founder Richard Jones was even more forthright, telling the website: "Apple just f****d over online music subs for the iPhone."

Though the streaming services will still be free to offer subscriptions through their own websites, they won't be able to link to their own websites' subscription pages from within the app. The rules come into effect on 30 June.

As Macworld reported, online music-streaming service Rhapsody has already expressed its anger over the rules. "An Apple-imposed arrangement that requires us to pay 30 per cent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable," the company said in a statement.

We7's Purdham, though, did hold out some hope, though, saying that the rules could see some "new and novel approaches". However, it is easy to see how frustrating a move Apple's subscription service is for the music industry - at a time when subscription-based services look to be making an impact in the fight against piracy, though still not generating enough money in terms of royalties, margins for servives such as Rhapsody, We7, Last.fm and Spotify are very lean indeed.

Some in the publishing industry seem to have a more positive view of the subscription service. As Macworld reported earlier this week, Richard Stephenson, CEO of London-based Yudu Media said he would advise publishers to put aside their reservations. Apple's commission may be a steep price, he said, but the user-friendliness of the iTunes subscription method may bring a higher number of subscriptions.

"We're a great believer in slick consumer journeys," Stephenson said. "When you take people off the App Store, you lose a lot of people along the way, the dropout rate is pretty high." There are so many iPads in circulation, Stephenson said, "whatever Apple charges, you have to be there. Don't fight it, run with it."

There are some companies that will fall foul of Apple's new rules without making changes to their apps in their existing forms, the most significant of which being Amazon. To meet Apple's guidelines, Amazon must remove its 'Shop in Kindle Store' link from its Kindle application. That link, which opens the iOS browser and displays Amazon's Web-based e-bookstore, is currently the easiest way for Kindle app users to purchase new books.

Despite some doubts about whether there would be any anti-trust investigations into the App Store subscription service, the Wall Street Journal has reported that US regulators are following developments closely.

Meanwhile, Google announced its own subscription service, One Pass just one day after Apple's announcement. It is only asking publishers for 10 percent of subscription revenue, as opposed to Apple's 30 percent.